FRONT LOADING YOUR RETIREMENT PLAN CONTRIBUTION

For most professionals, like physicians or dentists who fund their retirement through a 401(k), profit sharing or defined benefit plan, the earlier in the year you contribute to your retirement the greater chance you have to benefit from additional months of compounded tax-deferred growth.

It’s a question of lump sum investing versus dollar cost averaging and in most years, lump sum investing wins. Under ideal circumstances, lump sum investing works well if you can buy into the market at the point of the year when stocks are the cheapest. The problem is that we can’t know when that’s going to be. The market goes up in the long term, so in theory at least, the earlier you get into the market the better. And of course, you want to take advantage of both tax deferral and of compounding of investment returns as early in the calendar year as possible.

Historically, the stock market performs best during the 6-month stretch from November to April. If you dollar cost average the majority of your contributions are missing out on what are typically the best months of the year. Contributing as early in the year as possible better positions your portfolio to capture these market gains.

Investors who can’t come up with the cash to front-load their contribution might consider a loan from Eliasson Capital. Using the proceeds of a loan to front-load your yearly contribution and then paying the loan off over the course of the year will allow investors to participate in market returns early and still receive the full tax deferral advantages of investing in a qualified retirement account.